Tripartite agreements — also known as tri-party agreements — are legal agreements or contracts between three individuals or parties. These agreements can be a useful tool when setting up a tripartite employment relationship to grow your international workforce.
In this article, we explain everything you need to know about tri-partite agreements, including the precise meaning of ‘tripartite agreement’, when your company should consider using one, the risks of not using one and the key terms to include in such an agreement.
Please note, this article provides general information. You must seek professional legal advice to determine whether a tripartite agreement is the right choice for you.
What is a Tripartite Agreement?
Consider a regular contract or agreement: One person agrees with someone else, to do something in return for an item of value (called ‘consideration’, in contract law). One of the most common forms of agreement is an employment agreement or contract. In the normal case, we would expect an employment contract, sometimes called a ‘contract of service’, to be between between two individuals only. For example, Mr Justice Clarke, Chief Justice of the Supreme Court of Ireland had this to say about tripartite employment agreements:
- “It might theoretically be possible that a person might work under a contract for service where there were two parties on the other side as it were, although the absence of any examples is telling. Certainly the axiom that a man cannot serve two masters reflects much of the law as well as common sense.” (The Minister for Education and Skills v Boyle  IESC 52I).
Nevertheless, the law has recognized the existence and permissibility of these agreements with three individuals or ‘parties’: These are known as tripartite — literally ‘tri party’ —agreements.
An example of a tripartite agreement is ‘novation’. In novation, rights and obligations under the original contract are transferred from the original party, to a new third party. All parties must consent to novation.
Sample Tripartite Agreements
As mentioned, tripartite agreements can be applied in a range of contexts such as employment contracts and novation.
See some sample tripartite agreements in other contexts below:
- Partnerships and joint ventures — See the template tripartite agreement for partnerships between the UN High Commission for Refugees, collaborating non-profits and host governments
- The creation of security interests in solar EPC contracts — See PwC’s template tripartite agreement for Australia
- Dispute resolution — See the attached actual tripartite agreement where three parties working in a similar area of pharmaceutical manufacturing enter into an agreement to settle ongoing disputes between the parties.
Video: Tripartite Agreements in Action — Financing
In this video a proposal to use triparty agreements to coordinate action between banks, community investors and developers is discussed.
When Should You Consider a Tripartite Agreement?
Listed below are two common cases where tripartite agreements have proven useful:
To read more about how tripartite agreements can be implemented as part of a global human resources strategy see What Are the Best Tools for International Human Resource Management?
What are the Risks of Not Having a Tripartite Agreement?
It is possible to carry out an intra-group transfer, or to outsource, without a tripartite agreement. In some cases this may be necessary as the law in that country does not recognize tri-partite agreements. Where tri-partite agreements are permitted, however, there can be some risks involved in not using them. Two examples of how this could go wrong include:
What Should You Include in a Workforce Tripartite Agreement?
Usually, in a workforce tripartite agreement, all parties agree that the original employment relationship (with company x) will be switched to a new employer (company y). At the same time, the original employment contract is terminated, without severance or other benefits that usually accrue on termination.
When framing a tripartite agreement, important matters to consider include:
When operating across international borders, a tripartite agreement should also identify which laws are to govern the contract. An English case, Chunilal v Merrill Lynch  EWHC 1467 (Comm), concerned the intra-group transfer of a Merrill Lynch employee. The employee alleged that, under English law, an implied term of his contract had been breached through a ‘perverse’ reduction of his bonus payment. As the tripartite agreement did not specify which country’s laws applied (not to mention the fact that the employee agreed to the contract in New York, and actually worked and lived in Hong Kong), his case failed.
Horizons manages contracts for employees
If you are thinking about expanding your global workforce, you must ensure that you pick the right legal and compliance structures to suit your business. In some cases, it may make sense to incorporate a company in a foreign country. In other cases, it makes sense to hire a Professional Employer Organization (PEO), like Horizons.
When outsourcing, seconding or, transferring employees overseas, it is worth considering whether a tripartite agreement needs to be part of your business solution.